Finding Bargains In Asia

Includes: AAXJ, CHL, GDPM, SPY
by: Benjamin Shepherd

As the Chinese economy tries to grapple with the consequences of the eurozone crisis, the meager economic growth of the U.S. and its own domestic challenges, investors are spooked about the entire Asia region. Nonetheless, I continue to believe that China in particular and Asia as a whole offer the promise of outperformance in the years to come.

The Chinese economy still faces many hurdles, but it's in better shape than many analysts believe. The Middle Kingdom's gross domestic product (GDP) is set to deliver a solid growth rate of 8 percent in 2012. The government significantly boosted infrastruc­ture spending in the beginning of the first quarter, a stimulus that should en­sure relatively robust Chinese growth well into 2013.

I view the negative sentiment over the region as a contrarian opportunity. Investors should use the recent sell-off as an opportunity to pick up shares in Asia on the cheap.

Despite this generally positive view, the Asian slowdown has weighed heav­ily on iShares MSCI All Country Asia ex-Japan Index ETF (NASDAQ:AAXJ). The fund has a 30.9 percent weighting to­wards China, with a focus on growth sectors, such as financials and informa­tion technology. Consequently, the fund now significantly lags the S&P 500 (SPDR S&P 500 Trust ETF: SPY) and the Dow Jones Industrial Av­erage so far this year, a major depar­ture from past years.

However, Matthews Asia Dividend (MAPIX, 800-789-2742) has weath­ered the storm compared to domes­tic indexes, despite the fact that China is the fund's single largest country weighting, at 28.2 percent of assets. That's because manager Jesper Mad­sen's preferred hunting ground is div­idend-paying stocks, which have en­joyed favored status both in emerging markets and the U.S.

Favoring high-quality dividend pay­ers that are trading at cheap valua­tions, Madsen has used the sell-off in China as an opportunity to pick up names such as utility stock China Mobile Limited (NYSE:CHL) and Cheung Kong Infrastructure Holdings (HK: 1038), a major player in the en­ergy infrastructure market. By locking in their impressive dividend yields, he has provided the fund with a measure of stability.

As a result, it's one of the top per­forming diversified Asia/Pacific funds available, having outperformed the category by almost 10 percent on a one-year, three-year and five-year basis, despite the fact that Madsen also favors Japa­nese dividend-paying companies with a 22.4 percent allocation to the country.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.